Gate.io AMA with CVI-A Market Fear Index for the Crypto Space

Time: June 1st, 2022, 13:00 UTC
Gate.io hosted an AMA (Ask-Me-Anything) session with Tomer Menuchin, Head of BizDev in the Gate.io Exchange Community.
Official Website: https://cvi.finance/
Twitter: https://twitter.com/official_cvi
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Guest

Tomer Menuchin — Head of BizDev

Q&A from Gate.io

Q1: Could you please tell us what is CVI, and what are some use-cases?

In a nutshell - The CVI is a VIX for the crypto space.

The CVI index ranges between 0 and 200, and it tracks the 30-day implied volatility of Bitcoin and Ethereum.

Now, similarly to the VIX and the eco of products around it, for CVI to be popular and widely adopted, there should be an instrument allowing traders to easily open positions against the index and trade it.

Therefore, as part of the CVI launch, we introduced an innovative and full-scale decentralized eco which includes: The CVI trading platform, Volatility tokens, and the $GOVI token.

Both the platform (cvi.finance) and the volatility tokens allow people to trade the expectations of the market for future volatility.

So, trading the CVI Index is a great way to find profitable trading opportunities in the market without having to predict the direction of the price. Traders make a profit on volatile markets, whether the prices are going up or down.

In addition, it can be a great hedge against volatility & impermanent loss, since a long position on the index would increase in value when there is extreme volatility in either direction.

I invite everyone who is interested in reading more about our eco and protocol to visit our Gitbook: docs.cvi.finance! We tried to explain everything there as clearly as possible.

Q2: What inspired the inception of the Crypto Volatility Index, and what would you say the project is trying to achieve?

There are 2 charts that are always on our minds when we think about the future and are part of our vision. They show the adoption of the original VIX of the stock market over time.

The charts show several years of warming up followed by exponential growth.

In regular stock markets, the VIX is super popular, its ETNs have volumes of several billions per day! Due to the exponential growth that began with the VIX ETNs, we strongly believe that the CVI is a massive investment instrument. With the much higher volatility in crypto, there is no doubt in our minds that a VIX of crypto, such as the CVI, will be epic!

Half a year ago we launched our Volatility token CVOL, which allows anyone to take a long position on the index as simple as buying the token on a DEX. Next step coming soon is to build scalable liquidity for it, this will make it in many ways the equivalent of the VIX ETNs adapted to crypto, as an ERC20 token.

Q3: Since you’ve mentioned CVOL already, Can you explain a bit more about GOVI now, your Governance Token?

Sure. The GOVI token is an ERC-20 token, currently tradable in Gate, as well as DEXs on Ethereum, Polygon and Arbitrum and acts as the governance token for the CVI protocol and the platform.

I believe we managed to do one of the fairest launches with the launch of GOVI.

The GOVI token was airdropped to over 3000 people, who claimed it over a period of several months.
In addition, 60% of the distribution is done over time to the platform’s users via liquidity mining.

This also makes a lot of sense in our view, as who is better to control the platform and become its owners than its own users who have a stake in the game.

By staking their GOVI tokens, GOVI stakers earn a share of the fees collected from the platform (which currently are used to buy-back GOVI in the market). In less than a year we reached $1 Million USD equivalent in fees distributed to GOVI stakers and we keep growing! https://twitter.com/official_CVI/status/1455497684589158400

Q4: As we understand, you are also coming out soon with an Impermanent loss protection solution, can you please explain how it will work?

The CVI is the only protocol that provides this service to users without asking them for their liquidity - It can remain completely separate on a dex or staked elsewhere.

The CVI team is very excited to help liquidity providers protect their assets that would otherwise be exposed to impermanent losses. Using our proprietary model, any impermanent loss protection purchased will be reflected as an NFT that represents the coverage value, the appropriate time frame, and the pair selected by the user. Through this, any impermanent loss experienced will be automatically refunded to the user’s wallet for that time duration in a seamless and secure manner.

So by using CVI’s impermanent loss protection, users are able to supply liquidity in any chain, DEX, or platform. The users do not need to stake their LP tokens in order to purchase the CVI impermanent loss protection.

The liquidity itself can even be on a different chain than where the protection is taken.

This loosely coupled solution is key in our view - Since there is zero counterparty risk for the protection takers and it can protect liquidity on multiple different chains.

Q5: How do you calculate the Impermanent loss protection?

The calculation is part of how we leverage the CVI, as an indicator of implied volatility, to protect from impermanent loss.

We define the dependency between CVI and the expected IL percentage for the next 14, 30, and 60 days as a simple quadratic parabola fitted to the historical data. The effect of the curve can be explained by the following: When the volatility index is low, we can expect stable growth of eth price, which concludes in high Impermanent Loss. When the volatility index is high, we can expect a plunge in the eth price, which concludes in a high Impermanent Loss.